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Is It Possible to Create a Perfect System to Control MLB's Wild Spending?

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Is It Possible to Create a Perfect System to Control MLB's Wild Spending?
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By now, you've probably noticed the size of the dollar signs.

Carlos Ruiz got $26 million. Jason Vargas got $32 million. Jhonny Peralta got $53 million. Ricky Nolasco, Phil Hughes and Scott Kazmir combined for $95 million. The Yankees signed Brian McCann for $85 million and Jacoby Ellsbury for $153 million, as Jon Heyman of CBSSports.com was first to report.

The winter meetings haven't even begun yet, but here's us already looking in awe at the size of the checks. With an assist from MLBTradeRumors.com's transaction tracker, I count 31 free-agent contracts either signed or agreed to for a total of 74 years and $660.1 million. 

That's an average of nearly nine million dollars per year. To put that in perspective, I have the average free-agent contract for last winter's dealings at around $7.5 million.

Escalation. Inflation. Whatever you want to call it, there's some serious rain-making going on.

For the record, I'm not decidedly against it. It makes too much sense, for one. As Maury Brown of BizofBaseball.com showed last year, MLB's revenues are going nowhere but up. Also, 2014's when the league's new national TV deals kick in. Money is being spent because, hey, it's there to be spent.

It's also worth emphasizing that we've seen four unspectacular pitchers—Vargas, Nolasco, Hughes and Kazmir—get a combined $127 million from the Royals, Twins and A's. It's not just the big-market clubs participating in the wild spending, and that's a good thing.

...And yet, one still has a hard time keeping two questions from crossing one's mind. How wild is too wild? More to the point, is it even possible for MLB to control spending more than it already is?

Within these lies a third question: Is there a perfect system for MLB to limit spending somewhere out there waiting to be implemented?

Hmmm...We better work our way toward some kind of conclusion by reviewing what MLB already has in place.

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Maybe the biggest salary suppressor in the business is the arbitration process. It takes a couple of years for a player to qualify for arbitration in the first place, and in those couple years he's basically only entitled to the league minimum (presently around $500,000).

The arbitration process itself can result in players being underpaid relative to their talent, and it can happen even when players and teams avoid arbitration by striking a deal beforehand.

Take the $10.1125 million deal that David Price signed last January, for example. It was a record for a second-time arbitration-eligible pitcher but undeniably a fraction of what Price could have gotten on the open market following his Cy Young-winning season in 2012.

But while the arbitration system isn't perfect, it does have its advantages for both sides. Players may not get open-market dollars, but arbitration does grant them well-deserved pay raises. And even despite these raises, arbitration does keep players relatively cheap for a few years.

As far as our discussion is concerned, that last part is obviously kind of important. If the idea—or an idea, anyway—is for the league to control spending, the arbitration process must stay put.

While arbitration has been keeping spending on young players in check for decades at this point, there are two newer protocols in place that restrict spending on even younger players: the bonus pools that MLB now has for the draft and for international free agents.

These were put in place in 2011 in the most recent Collective Bargaining Agreement. All teams have X amount of dollars to spend on signing bonuses for draftees and for international free agents. For the sake of competitive balance, successful clubs have less money to spend and less successful clubs have more money to spend.

Before, teams could spend money however they wanted in these two arenas. Notably, this rendered the draft less of a draft and more of a random lottery. It wasn't uncommon for a player with first-round talent to slip due to "signability," only to be picked up later in the draft by a team that could afford him. Meanwhile on the international market, there was no limit to the millions teams could invest in amateur players with apparent big league potential.

Bob Levey/Getty Images
2012 No. 1 overall pick Carlos Correa got a $4.8 million bonus. 2011 No. 1 overall pick Gerrit Cole got an $8 million bonus in the last year before bonus pools.

Say what you will about whether bonus pools have fixed the draft, but they've had the desired effect on spending. According to the Associated Press, a record $233.6 million was spent on draft picks in 2011. The figure fell to $207.7 million in the first year of bonus pools in 2012. In 2013, $219.9 million was spent on the draft. More than in 2012 but still short of the record number of 2011.

As for the international market, well, it's harder to tell. But the only team that went really crazy to the point of blowing past its bonus allotment was the Chicago Cubs. If the idea was to keep teams in line, it seems the idea was successful.

Here's the thing, though: Restrict spending on amateur players, and a natural side effect is going to be extra cash in clubs' hands. That money can be spent on established players via extensions or, you guessed it, on the free-agent market.

Craig Calcaterra of Hardball Talk warned that this winter's wildness was going to happen:

We’re not in the same financial world in which we found ourselves in 1992, 2004 or even just a couple of years ago. Teams have more money to spend and, thanks to restrictions on how much amateur talent can be paid, they have fewer places to spend it....As such, the dollars that used to only go to the best of the best will now be going to the middle of the pack. The superstar dollars will go way, way up too.

This was written in late October on the heels of Hunter Pence and Tim Lincecum getting contracts worth a combined $125 million from the San Francisco Giants, and it rings true now. 

This leads us to our next question: With more money for the open market by way of the limits on draft and international spending, is there a way MLB can subsequently restrict open-market spending in a way that makes sense for everyone?

How about a hard salary cap, a la the cap used by the NFL and NHL? Such a cap sets a maximum for payrolls that teams aren't allowed to go over in any circumstances, ensuring that no team/teams is/are able to spend more on talent than everyone else.

Whether or not a hard cap is something that's in MLB's best interests is absolutely open for debate...But if we're being honest, it's probably a pointless debate to have.

There's one big roadblock standing in the way of such a thing ever coming to fruition: the players.

Jamie Squire/Getty Images
Fun fact: Adrian Peterson, the NFL's best running back, signed a contract in 2011 worth only $36 million guaranteed. That's $4 million more than Jason Vargas' new contract guarantees him.

Baseball players have it pretty good, you know. According to Forbes, the average salary for an MLB player in 2012 was $3.2 million. Among the four major American professional sports leagues, only NBA players were doing better. And that, of course, is not surprising given how few players are needed to field (court?) a basketball team.

Meanwhile, MLB players earn more in average salary than both NHL players and NFL players. The latter is on the bottom, which strikes one as being absurd. The most successful league of them all has the cheapest players. Go figure.

Since we know that MLB is going through an enormously successful period in its own right, you can only imagine the league trying to pitch the idea of a hard cap to the Players Association. 

"Hey, um, listen. You know how the league is flush with cash at the moment? Well, we think now's a good time for a hard cap. You know, like in those two leagues where the players are cheaper than you guys."

I'm not sure what the response from the union would be to that, but it would surely involve somebody getting slapped.

So we can probably scratch the idea of a hard salary cap. At least until MLB begins bleeding revenue to a point where drastic measures are needed, which is hard to see happening anytime soon with the gates turning and 162 games of DVR-proof programming worth what they are.

How about a soft cap instead, a la the one used in the NBA? A soft cap sets a payroll limit in the same way a hard cap does, but teams are allowed to exceed if certain circumstances are met. If those circumstances aren't met, then sorry, Jack. You've gotta pay.

But you know the funny thing about MLB and a soft salary cap? The league basically already has one.

Mike Stobe/Getty Images

It just goes by a different name: the Competitive Balance Tax. There's also its "luxury tax" nickname, though it's probably best known as that thing that the Yankees are always wrestling with.

The luxury tax works just like a soft cap. Each year, a magic number is set as a threshold for payrolls. Any team that sees its payroll go over that magic number is penalized in the form of a tax. It's a 17.5 percent tax for first-time offenders, 30 percent for second-time, 40 percent for third-time and 50 percent for fourth-time.

When the luxury tax was introduced about a decade ago, the idea was to keep payrolls from spiraling out of control. That the Yankees have habitually crossed the line would seem to indicate that it's not much of a deterrent.

But then you think about it some more. That the Yankees are the only team to habitually cross the line would actually seem to suggest the opposite. In fact, aside from them, the only teams to ever cross the line are the Red Sox, Angels, Tigers and, most recently, the Dodgers.

They crossed the line for the first time in 2013, and are very likely to do so again in 2014, according to Dylan Hernandez of the Los Angeles Times. And like the Yankees, the Dodgers have the funds to keep doing so as often as they wish.

But if you listen to Dodgers president Stan Kasten, it sounds like the Dodgers would prefer not to be a habitual luxury tax offender like their pinstriped counterparts, per the L.A. Times:

Kasten said he assumes that the Dodgers will one day be a franchise that can field a major-league team that will be under the luxury-tax threshold, but he doesn’t know when that will be.

"It takes a period of time," Kasten said. "I suspect a day will come when we’re below that, but we don’t have a year or target number because our decisions are based on what kind of team we can put together, first and foremost. I think over time we will be a team that builds from within."

Kirby Lee-USA TODAY Sports
Filthy rich, but maybe not without limits.

Maybe the Yankees will join the Dodgers. They don't look terribly committed to abiding by Hal Steinbrenner's notorious directive to get under the $189 million threshold in 2014, but there's no question it's still in their interest with a 50 percent tax rate looming.

And while the Yankees indeed are spending big this winter, they did see a ton of money come off the books at the end of 2013. They could see even more come off their books for 2014 if Alex Rodriguez is suspended without pay for a lengthy amount of time as a result of the Biogenesis scandal. Their goal of getting under $189 million is still very much alive even after the McCann and Ellsbury deals.

So while it's not a strict do-not-cross barrier, the luxury tax does its job well enough. It's something most teams don't want to mess with, as well as something that even the Yankees and Dodgers are wary of.

One thing that could scare the Yankees and Dodgers from the luxury tax even more is if a portion of luxury tax penalties started going to small-market teams. Contrary to what might be popular belief, that's actually not the case as things are arranged now.

Per Section H of Article XXIII in the CBA, 75 percent of the money goes toward benefits for players. The other 25 percent of it goes to the Industry Growth Fund.

But let's say that luxury tax dollars started going toward other teams' payrolls instead. Small-market teams would love that, but it doesn't make much sense for one team's punishment to be other teams' reward. Besides which, such a system could conceivably result in wild spending being punished in one place only to be enabled in another place.

As such, the general structure of the Competitive Balance Tax should probably be left as is. Maybe harsher taxes are in order, but the general idea works well enough as an answer to the NBA's soft cap.

But there's another thing the NBA has to suppress spending in addition to a soft cap: max contracts. Just as it sounds, what these do is set limits on how much players can be paid.

How about those for MLB?

Well, we once again find ourselves considering something the league would never get the players to sign off on. Ceiling-less, 100 percent guaranteed contracts have been the norm in baseball for decades. And with revenues where they're at, now's a hell of a time to take them away from players.

Besides which, the only way to make max contracts work consistently is to base them off of service time rather than talent. If it were to go for something like that, MLB could have itself a system where a really good player might make as much as Mike Trout just because he's been in the league as long.

And that's just plain silly, isn't it? [Pauses to shake fist at NBA].

With arbitration, draft and international bonus pools, and the Competitive Balance Tax already in place, max contracts look to me like the last and easily most drastic measure MLB has yet to toy with as a means of regulating spending. And since max contracts aren't happening on the MLBPA's watch, the conclusion we're looking at is basically this: It is what it is.

It's not a random occurrence that spending in baseball is wilder than ever. In addition to a result of the new rules restricting spending on amateur and international players, it's a result of revenues being wilder than ever. And even if MLB makes it a mission to suppress spending in the current environment, it's frankly hard to see how the league would do so in a way that would work for everyone.

If you're digging the wild spending, just keep digging it. If you're not, well, you can take heart in the fact that spending money isn't what it's all about anymore anyway.

 

If you want to talk baseball, hit me up on Twitter.

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